The Simple Economics of Basic Scientific Research

I begin this essay by reflecting on my early paper (Nelson, 1859), and Ken’s (Arrow, 1962), as period pieces. These papers certainly have been influential in shaping the discussion of science and technology policy over the last forty years, at least among economists, but at the time they were written, economists were just beginning to get into analysis of the key processes and institutions involved in technological advance. A lot has been learned since that time, and the discussion has become much more sophisticated. I will highlight two of those intellectual developments: the growing recognition that technological advance must be understood as an evolutionary process, and recognition that the institutions involved in that process include much more than the simple market institutions on which economists usually focus. Then I turn to the contemporary policy arena that is the focus of this conference: issues relating to intellectual property. Both to link the discussion to my old paper, and because my own recent research has been focused there, I shall focus particularly on the patenting of “science”. Finally, I will consider the institutional division of labor in research and development, and argue that the question of what should be private and what should be public about science and technology cannot be explored adequately without explicit consideration of mechanisms of funding, and of who is expected to do the work under what terms. I will focus particularly on the role of universities in the system of institutions that do R and D. 2